How Much Capital Do You Need to Start Forex Trading?

Imagine you are now a full-time trader earning a living from trading the global Forex markets. Doesn’t it feel great? No bosses to answer to and the potential for unlimited upside.

While this may be a pipe dream for many, thousands of traders are living this reality.

But what did it take to get there and more importantly, how much capital do you need to trade forex? By at least covering the basics of what you need, we can then discuss the potential of turning your trading skillset into a full-time career.

Getting started – How much do you need to start trading Forex?

Trading the Forex markets requires a lot of skill, patience and the ability to learn quickly from your mistakes. And yes, even professional traders make mistakes from time to time.

The allure of trading Forex, due to the leverage you get access to, is that you don’t need a lot of capital to get started.

At AxiTrader, you get access to more than 100:1 leverage. This means, $1,000 can control in excess of $100,000 worth of FX trades.

But you don’t want to be trading at such high levels of leverage. In this article, we’ll be talking about sensible risk management ideas to help minimise your exposure to wild equity swings.

Your goal when starting is to create and test a trading system that allows you to scale it up to appropriate position sizing, so much so that you have an opportunity to earn regular cash flow from your skill.

The beauty of trading with AxiTrader, is you can trade micro position sizes. A micro position of $1,000 will allow you to test your trading ideas on small positions such that if you lost ten trades in a row, your account would still be intact.

  • Micro - $1,000
  • Mini - $10,000
  • Full lot - $100,000

Let’s say you had ten losses in a row of 50pips each; your account would be down $50.

Losing ten trades in a row is not nice. But your focus should be on the lessons you learn while trading small with limited risk at play.

Long term, it is these early lessons that will be beneficial to your bank balance down the track.

Never risk more than 1% of your trading capital in learning mode

Another good rule of thumb when starting is to never risk more than 1% of your trading capital in any one trade.

Here is a table showing what a 1% risk per trade looks like relative to your starting balance.

For those who are risk-averse, you may want to go down to 0.5% risk per trade.

Trading Capital

1% Risk

0.5% Risk

$500 

$5

$2.50 

$2,000 

$20 

$10.00 

$5,000 

$50 

$25.00 

$10,000 

$100 

$50.00 

$20,000 

$200 

$100.00 

$50,000 

$500 

$250.00 

$100,000 

$1,000 

$500.00 


As you can appreciate, losing $2.50 to $5 per trade when starting should be within most people’s comfort zone. Losing is never nice, but by keeping the losses small, we can get back on the horse and try again.

Therefore, it would be fair to say that a $1,000 trading account is fine if you are looking to trade micro positions and risk no more than 1% per trade.

Remember, your goal with an account this small is to build strategies and methods that have an edge and which allow you to scale up over time to a position size that could generate steady cash flow.

Impact of starting balance on trading costs

One of your first goals when trading is to get to breakeven. Exciting goals, right?

Keep the big picture in mind when you start trading Forex. If your big picture goal is to trade full-time and replace your current income, then be prepared to hone your trading skills for 7-10 years first.

So, in this blog post, we are going to assume you are willing to play the long game of keeping your losses small and your foundation rock-solid.

So what does it take to breakeven?

Every time you make a trade, you will incur a cost.

If you are trading the AxiTrader MT4 Pro Account, you will incur a $USD3.50 per side cost or $USD7.00 round trade for each full lot.

Here is a breakdown of your round trip brokerage costs from a micro lot to a full lot when trading on the AxiTrader MT4 Pro Account.

Trading costs on the MT4 Pro Account

Trade Size

Round Trip Cost

$1,000

$0.07 

$2,000

$0.14 

$5,000

$0.35 

$10,000

$0.70 

$50,000

$3.50 

$100,000

$7.00 


If you trade once per day or let’s say, 20 times per month, and each trade is one micro, it means your total brokerage for the month will be 20 x $0.07 or $1.40.

On a $1,000 account size, you would need to make 0.14% per month to cover your trading costs.

But if you leverage up too much and trade full lots on a $1,000 account, then 20 trades at $7 round trip would be $140. That’s 14% on a $1,000 account to break even.

You can see in the table below, how your account size affects the percentage gain you need to make each month just to breakeven based on $140 per month in brokerage expenses.

Account size

Expenses

Breakeven %

$500 

$140

28.00%

$1,000 

$140

14.00%

$2,000 

$140

7.00%

$5,000 

$140

2.80%

$10,000 

$140

1.40%

$20,000 

$140

0.70%

$50,000 

$140

0.28%

$100,000 

$140

0.14%


You can draw a few conclusions from the information in the table above.:

  • You should start with small position sizes (i.e. don’t over-leverage).
  • A small account size means your money has to work incredibly hard for you.
  • The larger your account size, combined with sensible position sizes, means each position doesn’t have to perform ‘miracles’ to get to breakeven.
  • Most small accounts feel the need to take on large, risky position sizes to cover expenses and make a profit.

What does it take to make $1,000 per month?

Account size

Expenses

Breakeven %

$1,140 per month

$500 

$140

28.00%

228.00%

$1,000 

$140

14.00%

114.00%

$2,000 

$140

7.00%

57.00%

$5,000 

$140

2.80%

22.80%

$10,000 

$140

1.40%

11.40%

$20,000 

$140

0.70%

5.70%

$50,000 

$140

0.28%

2.28%

$100,000 

$140

0.14%

1.14%

Now things start to get interesting.

If you want to cover your expenses and generate $1,000 profit per month, you’ll need to make 114% per month on a $1,000 account.

How realistic do you think that is?

Considering most large funds look to make 10-15% per year, you’ll need to adjust your expectations.

Covering your monthly expenses and generating a profit of $1,000 requires smart planning, especially if you are going to trade in a risk-averse manner.

Hopefully, we have been able to answer your question of how much capital you need to trade Forex. You should now be clear on the objective of getting to breakeven and then the returns needed to generate positive cash flow.

 

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.